Opportunities abound in feeding the world, from farmland to irrigation, from processing crops to food ingredients.
The basic outline of the story rests on a couple of estimates: a 30% increase in world population by 2050, which translates into a 70% increase in food production. Even if those numbers turn out to be only sort of right, they are a reliable base to build on investmentwise.
Though seemingly timeless, there are a few things happening now that make opportunities in agriculture more urgent…
On this, my friend Brad Farquhar at Assiniboia Capital in Regina, Saskatchewan, sent me a couple of interesting things over the weekend.
I like to call Brad “Our Man in Saskatchewan.” He is a great source of insight on agricultural markets, as well you might expect. Assiniboia Capital manages the largest farmland fund in Canada. I’ve quoted him many times in these pages (here or here, etc.) over the years.
Anyway, Brad sent over a newsletter called the Global AgInvesting Quarterly. The letter’s main story is on drought and how it will impact harvests this year. For the U.S., we just had the worst drought in 50 years. Citing U.S. Drought Monitor, at the end of August, GAI Quarterly notes:
The USDA recently cut harvest forecasts for corn and soybeans by 25% and 18%, respectively.
But it is not just the U.S. that Old Man Drought has bled dry. Russia, India and the EU all struggle with dry weather. Here is a snippet from a chart included in GAI Quarterly:
GAI Quarterly speculates, with evidence both anecdotal and empirical, that we’ll see more and drier weather in the U.S. Corn Belt — a continuation of a near-term trend. Rising temperatures have helped the Canadian Prairies, however; warmer and wetter weather means more prime farming acreage. Brad reports on successful corn and soybean plantings for the first time in Saskatchewan. Brazil is another area that has escaped drought with expected record corn and soybean production.
Dealing with drought means more opportunity for irrigation, but also for a group of foods called pulses.
One company I follow processes pulses like lentils, beans and chickpeas. This company has facilities in the U.S., Turkey, South Africa, Australia and China. Long term, I’ve always liked the story here, it fits perfectly with our “feeding the world” thesis.
Pulses have much to recommend them. In a world where water is a constraint, it takes much less water to produce a pound of pulses than other foods.
Take a look at how many gallons of water we use to produce the following foods:
Pulses, as you see, use the least amount of water. They are also high in protein and fiber, nutrient dense, low fat, gluten free and non-GMO.
Pulses also make their own fertilizer by fixing the nitrogen in the soil and require half the nonrenewable energy to produce than other crops, such as wheat. Growing pulses, therefore, also lowers carbon emissions.
Food producers are starting to appreciate these things. I remember sitting in an Italian restaurant with one CEO while he explained how one day food companies would mix pulses with wheat to make pasta. Well, that day has arrived.
Food companies are now making flour with pulses and mixing it to make not only pastas, but baked goods, snack foods and other packaged goods. Doing this allows them to make health claims, as in the above picture.
Here is another picture.
Look closely at the ingredients:
Yes, “legume flour blend” — you’ll see more of this, I guarantee it. And once one food producer like Barilla does it, they’ll all follow suit. After all, they can’t let a competitor make all those claims while they stick to old-fashioned wheat flour!
Already, a number of food companies have declared ambitious goals: PepsiCo wants to reduce its water use in five years. Heinz wants to reduce carbon emissions by 20% by 2015. Wal-Mart, Carrefour, Tesco and others are all tracking things like water use and carbon emissions. Products that can help them meet those goals — like pulses — will get more attention.
So this is an exciting story. Companies that processing pulses, like the one I follow, should see plenty of business in the years ahead.
Traditionally, the markets of South Asia, Latin America and the Middle East and North Africa have been the main drivers. But the new emphasis on pulses as a food ingredient, and a water-efficient, protein-rich crop, opens up new markets in Europe, the U.S. and China.
Original article posted on Daily Resource Hunter
Chris Mayer is managing editor of the Capital and Crisis and Mayer's Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012, Chris released his newest book World Right Side Up: Investing Across Six Continents.
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